Adding Fuel To The Fire

Adding Fuel To The Fire

Not too many years ago, higher fuel prices were a non-issue with CropLife┬« 100 retailers. Indeed, in the 20th annual survey of the nation’s top ag retailers in 2003, fuel prices didn’t even rank among the top five issues when respondents were asked to list their key market concerns for the year. The following year, 2004, fuel prices again failed to register.

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My, how things have changed. From a non-issue during the early 2000s, fuel prices have become the issue during the middle years of the decade. In our magazine’s 22nd annual CropLife 100 survey last year, concern over higher fuel prices easily led the field of top limiting growth factors at 53%.
Moving into 2006, higher fuel prices again look to be on pace to lead the top five limiting-factors pack. Although it’s still early in the survey collection process (with approximately 35% of the forms returned at presstime), 60% of responding retailers have indicated higher fuel prices as the biggest challenge to their profitability moving into the 2007 growing season.

“We are experiencing big pressure on margins and high expenses for things such as fuel,” says Peter Vail, president of Carolina Eastern-Vail, Inc., Niverville, NY. “At this time, we have not been able to recoup these added expenses.”

Presenting something of a perfect economic storm for retailers, there are indications that higher fuel prices are among the many factors that have severely curtailed grower-customer spending in 2006. According to Dan Kennedy, general manager for Ritter Crop Services, Marked Tree, AR, “the farm economy in general” is the biggest growth-limiting factor facing his company’s market at the moment.

And this downturn isn’t limited to Arkansas. According to the Economic Research Service, grower income is forecast to be down 26% for 2006 to $54.4 billion. More troubling, this figure is below the average 10-year grower income level of $57.2 billion.

Charging More

Not surprisingly, most retailers have responded to this fuel price crunch with multiple programs to recover their expenses. In CropLife’s 2005 CropLife 100 survey, we asked retailers how they were dealing with higher fuel costs. Seventy-one percent indicated they were simply charging more for their application work. The second most popular choice was adding a fuel surcharge to their grower-customer bills at 35%. Several retailers were employing both options in 2005 (hence the 106% total percentage figure illustrated in the numbers, because the question asked for respondents to mark all options that were being tried). Still, somewhat surprisingly, almost one in four (24%) of the CropLife 100 retailers in 2005 weren’t trying to recover their higher fuel costs from grower-customers. Perhaps these retailers were afraid adding such costs to their service fees would convince their clients to “shop around” and leave them.

This reluctance has apparently subsided in 2006, however. According to the surveys turned in so far for this year’s CropLife 100, just short of 90% of responding retailers are charging more or adding fuel surcharges to their grower-customer bills.

Of course, a few retailers have employed novel approaches to keep their businesses profitable in this higher fuel price climate. According to Kathy Sims, president of Sims Fertilizer & Chemical Co., Osborne, KS, her company’s grower-customers have helped curb costs through their growing practices. “The continual growth of no-till farming has been key for our business to combat high fuel and operating costs,” says Sims. “We’ve seen significant growth in the last few years.”

Others foresee higher fuel prices leading to some previously untapped market opportunities, for grower-customers and their dealerships alike. “Ethanol should increase corn acres, which will be good for us,” says Dennis Montavon, general manager for Effingham Equity, Effingham, IL.